You’ve drawn up a shortlist of potential locations. You’ve researched location-independent jobs, and polished up your CV, ready to get started. You’ve examined the potential challenges that lie ahead, and you’re already picture yourself reclining on a beach somewhere, watching your income swell as the palm trees rush gently overhead.
Now it’s time to get serious about your tax situation as a citizen of the world. ‘Digital nomad’ and ‘taxes’ might not intuitively go together, but you will need to think about where you plan on registering your businesses, and what taxes you might be liable to pay.
Relocate Antigua walks you through the ins and outs of digital nomad taxes and what to expect.
What does tax residence mean, exactly?
Tax residence is all about where you pay your income tax, based on the location where you live and work. For most people, it’s a pretty clear-cut situation: the majority live and pay taxes in their home country.
Naturally, for remote workers, a variety of factors come into play to turn tax residency into a bit of a minefield. Your tax status is far from being as simple as paying tax in the country where you make your money, or the country you call home.
Digital nomad tax residency
Make no mistake: tax residency in relation to digital nomads is an incredibly complex question, with each country operating their own intricate and unique web of regulations, exceptions, criteria, and conditions.
Before you leave home, it’s absolutely indispensable that you do your research into regulations in both your home country and your destination. If you have any doubts, give the Relocate Antigua team a call for help with unpicking the nitty-gritty details.
There are, however, a few core concepts you’ll see cropping up time and time again.
The 183-day rule
The vast majority of countries around the world implement the 183-day rule, with the stand-out exception of the United States. According to this widespread logic, the place you are legally tax resident is the place you spend 183 days of the year or more – opening up a loophole that some digital nomads choose to exploit.
The United States is one of the only countries in the world not to apply a straight-forward 183-day calculation to determine your residency, working instead with a complex set of factors. Digital nomad strategic website Nomad Capitalist has an excellent, thorough guide to avoiding being classed as a US tax resident. According to their researchers, the American Internal Revenue Service (IRS) looks to check that you:
“1) Were or will be in the US for at least 31 days during the current year; and
2) Will spend at least 183 “days” in the US within a three-year period.”
- Known as the Statutory Residence Test in the context of digital nomad UK tax, and the Bona Fide Residence Test for digital nomad US taxes, these assessments aim to examine your personal and business situation looking for connections to outside countries, if you’re a citizen of either of the two.
The idea is to grant you an exemption on paying income tax in the United Kingdom or the United States, based on evidence that you have established roots in a foreign country. In other words, if you can prove your personal and business interests are firmly anchored elsewhere, you’re released from your tax obligations to your home country.
- If you’re an American citizen or permanent resident/green card-holder, you’ll be forced to follow the United States’ citizenship-based taxation regime: meaning you’ll need to file annual tax returns, irrespective of where you live or make your money.
Luckily enough, the Foreign Earned Income Exclusion (FEIE) is one way American digital nomads can enjoy a little tax relief. You can check the IRS official website for more details on this scheme, but in a nutshell, the FEIE lets you deduct a certain amount of your foreign-earned income from your American tax bill – up to USD$105,900 in 2020, which is huge.
If you want to qualify for the FEIE tax exemption, however, you’ll need to pass the physical presence test, an assessment similar to the bona fide residence test. The difference between the two? The former looks solely at the number of days you spend in a country outside of the United States, without seeking to determine how deeply connected you are to your host country.
Essentially, all you have to prove is that you spent 330 days over a 365-day running period outside of the United States, with no obligation to provide supporting evidence as to how integrated you are in your new home.
We warned you this tax residency business was hard work! If you’re going to make it as a successful, happy digital nomad with plenty of income to spare and peace of mind, we always recommend discussing your situation with qualified professionals, be it a tax lawyer or an accountant.
Relocate Antigua specializes in dealing with bureaucratic complexities and all the admin that would otherwise break your flow. Our tax residency service takes you by the hand and irons out the details, leaving you free to relax and explore, in complete confidence that your tax situation is in safe hands. Drop us a line with any questions you might, and we’ll take a look at your circumstances and see how we can help.
Living the zero-tax dream
Regulations haven’t changed, necessarily, but tax authorities are wizening up to loopholes that were once exploited to the max, and are turning a keener eye to catching digital nomads out. Although many countries around the world are clamping down and tightening up restrictions to prevent digital nomads avoiding tax, going tax-free is still an option.
Drawing on the 183-day rule
The 183-day rule means it is technically possible to be a tax resident of nowhere. By moving on every few months, no single country can claim you as a tax resident, leaving you free to avoid paying any income tax whatsoever. The problem with this technique is it leaves you vulnerable should you wish to one day put down roots again. Which leads us seamlessly on to the other, more palatable options…
Setting up a base in a low- or zero-tax country
This is a commonly used tax strategy some digital nomads use to slash their tax bill. Known colloquially as tax havens, these countries offer generous tax breaks for remote workers looking to make a home for themselves. Keep things simple by registering your company in the place you plan on using as your physical base, too.
Makes most top digital nomad country lists thanks to the impressive list of benefits available under its non-habitual resident simplified tax regime. These include exemptions on all foreign income, a 20% flat-rate tax on income generated in Portugal, zero wealth tax, and no minimum stay requirement. Along with Malta, Portugal is home to some of the lowest digital nomad taxes in Europe.
Lisbon in particular has garnered a reputation as a digital nomad haven – this vibrant city is brimming with cutting-edge coworking and coliving spaces, and has a thriving remote worker community.
Already a firm favorite with globetrotters from around the world, Thailand is an attractive destination with digital nomads for more than just is beachside living. The country doesn’t tax foreign income provided it isn’t transferred into Thailand the year it is generated. The 30% tax band for income generated in Thailand was expanded in 2019 too, which is good news. It’s worth pointing out that to be considered a tax resident of Thailand, you’ll need to remain in the country for 180 days a year.
- If glistening skyscrapers and the mystical charm of the desert are more your thing, you might be interested to hear that Dubai has just launched its new one-year virtual working program for digital nomads and their families. The remote-working scheme costs just shy of USD$300 to buy in, and gives you access to all facilities, including schooling, utilities and super-slick digital and telecom set-ups, provided you can prove monthly earnings of at least USD$5K.
Take a look at Relocate Antigua’s dedicated article on digital nomad best cities and top locations for more inspiration on where to head next. We also recommend checking out our digital nomad visa guide to help narrow down your options.
These top-three destinations are excellent choices for digital nomads looking to lighten their tax bill and soak up some sunshine, but we have our own number-one favorite. Antigua is an unbeatable choice in terms of the perfect nomadic destination. Clean, safe, jaw-droppingly beauty, and with an incredibly generous visa scheme to boot, that demonstrates a perfect understanding of digital nomads’ priorities and concerns. Read on the find out what’s new for digital nomads heading to the island…
Tax residency in Antigua
Antigua and Barbuda are longstanding crowd-pleasers in the location-independent community. Safer than most other exotic destinations, with all the cachet, glamour, and spell-binding beauty of the Caribbean, it really doesn’t get more idyllic than renowned tax haven Antigua. And the country is actively welcoming more digital nomads in to get in on the action.
The Nomad Digital Residence visa
The dual-nation island had no problems attracting the remote-working crowd to its shores – the balmy beaches, warm, tropical atmosphere, friendly locals and buzzing nightlife already had that covered. But with its new-for-2020 “Nomad Digital Residence” (NDR) visa scheme, Antigua is definitely taking things up a gear.
The takeaway points for this innovative new tax residency program include:
- Two years’ residency, giving you the freedom to work remotely from anywhere on the island
- Application fees of USD$1,500 (single applicant), USD$2,000 (couple) and USD$3,000 (family).
- ZERO income tax to be paid in Antigua.
The government has set up a user-friendly website giving would-be digital nomads the lowdown on how to apply.
Permanent Residency Program
If you’re looking for an Antiguan tax residency solution that’s more long-term and you can demonstrate a minimum income of USD$100K, this world-beating scheme, this is the one for you. The benefits of Antigua’s tax scheme for non-citizens include zero worldwide income, inheritance and capital gains taxes, and no income tax payable in your home country – and you only need to spend 30 days a year on the island to enjoy the advantages.
Relocate Antigua’s specialist tax residency teams are on hand to take you under their wing. We deal with all the paperwork needed to secure your residence and citizenship, as well as handling your digital nomad visa application, organizing notarized translations for your paperwork, and helping you get set up with bank account opening processes and providing you with all the real estate advice you need. Pick up the phone, and let’s get talking.
Final thoughts: slash your tax bill while working around the world
It’s an overwhelming feeling to realize that not only could you be working in some of the world’s most lusted-after destinations – you could also be saving heaps of cash as you go, too.
While the possibilities for slashing your tax bill are endless, be aware that tax and fiscal obligations are a tricky business, and need careful thought and expert knowledge to get right. One false move could see your dreams of living a location-independent lifestyle go up in flames, with potentially serious consequences.
That doesn’t mean you need to feel nervous. But it does mean you should only ever proceed following advice from qualified, certified professionals with extensive experience advising digital nomads like you.
As well as offering its own in-house team of Antiguan experts, over the years Relocate Antigua has gradually pieced together its own little black of book of hand-picked expert accountants, tax advisors and investment specialists. No matter what country you’re coming from, or where you plan on heading next, your situation will be unique to you and the regulations in force in your home and destination locations.
Request a callback from one of our advisors, and we’ll put you in touch with the exact right contact for you. Take the hassle, worry and number-crunching out of your digital nomad experience, and leave the bureaucracy and paperwork to people in the know.